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Why are international money transfers important?

Many families stay connected through remittance payments
Many families stay connected through remittance payments

Remittances represent a significant source of income for many poor countries, but are they important for more than just their face value? Stanley Ellerby-English looks at this question.

Remittances are the direct transfers of money from migrant workers in a host country to individuals, usually friends or family, in their home country. Unlike other international transfers of money, such as foreign direct investment or aid donations, the individual amounts that are sent are usually relatively small. Most of the time they utilise payment services, and a recent report by the Overseas Development Institute (ODI) suggests that some of these services may be charging excessive fees to users. With this in mind, it is worth looking at why this is a particularly important issue.

First and foremost, they represent a huge portion of global flows of cash. In 2012 the World Bank estimated that the total amount for all countries was $529 billion dollars. To put that in perspective, the World Bank estimates that foreign aid from governments in the same year amounted to just over $133 billion. It is also worth bearing in mind that the data only includes remittances that use formal methods, like banks or payment companies, and the actual figure could be as much as 50% higher.

Remittance payments are, therefore, hugely significant to people all around the world – interestingly, in 2012 the UK received an estimated $8.3 billion in remittances. However, they are particularly important for people and families in poor countries, where this money can represent a large proportion of their income. The obvious monetary value of remittances is great, but the wider impact these payments can have is just as interesting.

The culture of remitting

Remittances are not made to random people and are almost always based on an existing relationship. Migration itself is often a communal undertaking in poor countries. Individuals can rarely afford to move to a foreign country on their own, and many are supported by their friends and family. Of course, these people are connected to the person they helped migrate and would usually like to continue that connection. Equally, those who travel to foreign countries for work don't just forget about the people back home, and remittances are an important way in which these intercontinental relationships are maintained.

Little boy in classroom in Tanzania
Excessive charges on remittances in Africa could pay for school places for half the continent's out-of-school primary children
What is interesting about remittance payments is that they are often very purposeful. Migrants don't just send money back; they send money back with certain expenses in mind. For example, in Ghana remittances are often used to pay for the funeral costs when a relative dies and in Pakistan remittances help build houses in home villages. Other uses could include paying for a younger sibling to go to school or for an uncle's hospital bills. Simply put, it's not just about the money.

As researchers in both the Pakistani and Ghanaian case identified, remittances were as much about relationships with home communities as they were about the money itself. When cash is sent for a specific purpose, it cements, quite literally in the case of Pakistani houses, the idea that the sender still has a voice in the community. Ties maintained in this way could now be having broader impacts on the countries migrants come from, and the ones they come to.

Important for all countries involved

One prominent example is the role of the 25 million non-resident Indians (NRIs) in the country's politics. India is the world's largest recipient of remittances, and many major news agencies, both in India and abroad, are noting the increasingly vocal stance that NRIs are playing in the ongoing election. Not only are many returning to India to vote, but they are also using the internet to help campaign and influence voting by family members back home, many of whom depend on the money they send.

These transnational relationships should be just as interesting to countries where migrants live and work. It's a two way street after all, and migrants are equally affected by their connections to their home countries. With this in mind, governments will have to think carefully about how they approach different issues, and may even be faced by challenges they had never foreseen.

The ODI report mentioned earlier is a great example of these new issues. It estimates that if excessive charges placed on money sent to Africa were removed, the savings could be enough to pay for 14 million primary school places. That's half the total number of children not attending primary school across the whole continent. People are becoming more connected than ever before. Remittances are a part of this process and must be taken seriously in both sending and receiving countries.

SOS Children helps struggling families boost their income in over 100 countries worldwide. Find out more.

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